For Individual Investors in the US

With Pause Extended, It’s Still Time to Get Your Student Loans in Order

Ben Rizzuto, CFP®, CRPS®

Ben Rizzuto, CFP®, CRPS®

Retirement Director


Jan 13, 2022

With the pause on student loan payments extended through May 1, Retirement Director Ben Rizzuto reiterates the advice he offered to borrowers last August – which still applies despite the extra breathing room – and outlines some additional changes to be aware of.

Last August, I published a post urging student loan borrowers to prepare to start repaying their student loans at the end of January 2022. At that time, the Department of Education had said that the extension to January 31, 2022 would be the final extension of the pause, which was instituted in March 2021 as a COVID relief measure. At the end of 2021, however, President Biden announced another extension of federal student loan forbearance, and payments are now set to resume after May 1, 2022.

Clearly, this is positive news for borrowers, many of whom are still struggling financially as the Omicron variant sweeps through the economy in the latest COVID surge. Of course, the continually shifting dates can make it difficult to plan ahead, so it’s important to try to stay informed and follow the steps I outlined in my previous post to make sure you’re prepared.

To that end, in addition to the recent extension, there have been some other changes in the student loan world that folks should be aware of.

More Changes Among Service Providers

In the same August update, I discussed the fact that 10 million borrowers – around 25% of the Department of Education’s entire portfolio – would be affected by the exits of Granite State Management and Resources and FedLoan Servicing, the Pennsylvania Higher Education Assistance Authority, from the federal student loan business.1

Since then, there has been yet another shake-up among major student loan service providers: government-held federal student loans that were previously serviced by Navient are being transferred to Aidvantage. This will affect approximately another 5 million borrowers.

Along with that, in October, the Department of Education announced that it would be implementing stricter standards for service providers with regard to performance, transparency and accountability. These stricter standards are good for borrowers but could also lead to more service providers exiting the business.

Finally, FedLoan Servicing, which currently handles the PSLF program, will also be exiting the federal student loan system. For those of you affected by this, you may have already seen your account transferred to the Missouri Higher Education Loan Authority (MOHELA). Others, however, may be transferred to other servicers this year.

There’s Still Work To Do

Again, while the extension gives borrowers some breathing room, my suggestions from last August still apply. First and foremost, if you are able to continue paying your student loans while no interest is accruing, you should do so, as it will lead to significant savings in the long term.

Additionally, if you’ve been affected by these changes, you’ll want to:

Print or Download All Student Loan Payment Records. One of the main issues borrowers have encountered in the past is a lack of consistent recordkeeping when it comes to the federal aid system.

While this is important for all borrowers, those who are in programs such as Public Service Loan Forgiveness (PSLF) or an income-driven repayment plan – where time spent repaying student loans while enrolled is critical to obtaining eventual loan forgiveness – will need to pay particular attention to this step.

Download and retain these records now, and consistently moving forward, then put them in a safe place in case you need to access them in the future.

Save Copies of All Student Loan Correspondence. Along with your payment history, you should keep copies of any correspondence you’ve received from your loan servicer or the Department of Education in the past. Again, for those in long-term payment programs like PSLF or income-driven plans, this will be essential. Remember, those plans can last from 10 to 25 years, so you’ll want to make sure these documents are housed in a safe place that can be easily accessed should your enrollment in the program ever be called into question.

Monitor Payments and Auto-Debits. With any transition such as this, and as we mentioned earlier, you should make sure payments are being made or are automatically being debited. In a 2015 report, the Consumer Financial Protection Bureau found that, “when servicers change, payments may be lost, consumers may incur surprise late fees, and processing problems and missing account records can knock borrowers off track on repaying their loans.”2 So be sure to check your bank account and loan account on a monthly basis to make sure payments are set to be debited on or before their due date, and that they are then being debited from your bank account.

While the further postponement of payments can be helpful, remember that we shouldn’t take an “out of sight, out of mind” stance with student loan debt. Make sure you are clear on the status of your loans, confirm all your documents are securely saved and easily accessible, and keep track of your payments. Taking these steps now will help reduce the risk of default or delinquency when May comes around.

 

1 “Student Loan Cancellation Debate Continues Amidst Servicer Disruptions.” Forbes. July 21, 2021.
2 Consumer Financial Protection Bureau. “CFPB Concerned About Widespread Servicing Failures Reported by Student Loan Borrowers.” September 29, 2015.